SamHolmes

SINGAPORE--Oversea-Chinese Banking Corp. (O39.SG) Thursday said second-quarter net profit rose 12%, beating market expectations as the group continued to report strong loan growth in the face of persistent pressure on net interest margins.

Net profit for the three months ended June 30 was 648 million Singapore dollars (US$519.5 million), up from S$577 million a year earlier, Singapore's second-largest bank by assets said.

OCBC's earnings were higher than the average forecast of S$616 million by six analysts polled by Dow Jones Newswires.

Net interest income for the quarter was S$931 million, up 13% from S$827 million, while noninterest income rose 2% to S$596 million from S$586 million.

"Our asset quality also remains strong as a result of continued prudent risk management and active portfolio reviews," Chief Executive Samuel Tsien said.

"While the economic environment remains uncertain, we will continue to grow our customer franchise across all key markets with our strong capital and liquidity base."

The bank's customer loan book grew 14%, driven by broad-based growth across geographies and industries. However, net interest margins--the spread between the cost of borrowing and gains from lending--have continued to contract, falling to 1.77% in the second quarter from 1.86% in the first and 1.87% a year earlier.

Singapore's banks, like their Hong Kong counterparts, have faced persistent headwinds from contracting net interest margins over the past three years. Despite some signs of stabilization late last year and earlier this year, spreads fell again in the second quarter owing to the accentuated low global interest-rate environment.

OCBC's modest rise in noninterest income was a result of lower gains from the bank's life-assurance business offsetting stronger fee and commission income.

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